India still shut to dairy
The Australia-India Economic Cooperation and Trade Agreement (AI ECTA) was signed on April 2, creating quite the media splash.
The AI ECTA is an interim agreement, a stepping stone to which both countries have committed as they work towards a full comprehensive economic cooperation agreement.
While several agricultural commodities received preferable outcomes, dairy products have for the most part been excluded from market access gains.
The signing of the AI ECTA did provide a positive outcome for Australian infant formula, which will enter duty-free status seven years from entry into force of the agreement.
Negotiations for the AI ECTA originally began in May 2011 and were suspended in 2015. With an aim to improve bilateral trade between India and Australia, efforts were recently renewed to finalise the agreement.
India is the world’s second most populous country. Home to about 1.3 billion people, exponential population growth has seen the country creep closer to overtaking China, which is expected to occur in the next few years.
A significant proportion of the population is vegetarian; dairy is therefore an important nutrient source and widely consumed.
India’s population is extremely young, with these age groups consuming larger quantities of milk. As such, India is the world’s largest consumer of dairy.
Since economic liberalisation in the early 1990s, ongoing urbanisation and rising incomes have bred a large middle class with more expensive tastes.
With dairy being such an important part of the consumer diet in India, the supply of milk is considered critical.
From a country which faced milk shortages in the 1970s, India has transformed into the world’s largest dairy producer. Dairy farms in India are generally small scale, with about 95 per cent of farmers milking less than five cows.
More than 50 per cent of the Indian labour force is employed in agriculture, and dairy farming plays a vital role in the country’s economy. The ability to secure year-round income through dairy farming, as opposed to other agricultural products, attracts many to the industry.
There are various subsidies put in place by the government to help support production and maintain a healthy dairy industry. Over time, the industry has become heavily reliant on this support and India maintains an exceptionally protectionist trade policy regime around dairy.
Aside from high tariffs, various national and state sanitary and phyto-sanitary regulations act as non-tariff barriers to trade. As such, dairy imports into India are minimal.
Lactose and whey powder account for 93 per cent of imported dairy product and most is sourced from the European Union.
India only imports a tiny amount of dairy product from Australia, with lactose and whey powder accounting for roughly 98 per cent of that volume.
Patchy global competitiveness and strong political influence within Indian agriculture have previously hindered trade reform in this sector.
The country has previously maintained high tariff rates on dairy imports, however, in instances of supply shortages, these tariffs have been occasionally lifted on an ad hoc basis.
While other global markets continue to grow and develop as viable destinations for Australian dairy, India is yet to open its trade borders wide and consistently to Aussie products.
It is currently unclear if further outcomes will be produced as both countries work towards a full comprehensive economic cooperation agreement.
However, after 50 years of investment into its own industry and self-sufficient goals, India is likely to continue to protect all that it has built.